In this article, game theory is applied to the battle of the forms and related scenarios to explain Daniel Keating’s observations, reported in the article "Exploring the Battle of the Forms in Action," 98 MICH. L. REV. 2678 (2000). The first of the two major findings in the paper is that drafters of boilerplate language should use adversarial, U.C.C. § 2-207(1) proviso-conforming language to ensure that clients receive terms that are no worse than the default U.C.C. gap fillers. This is done first by explaining how courts apply U.C.C. § 2-207 to the battle of the forms, and then applying backwards induction to a model of this situation.
The second major finding is that there is a penalty default rule in contract law. This has been debated by the likes of Ian Ayers, Robert Gertner, and Eric Posner. The penalty default rule was hiding in the U.C.C. under the guise of the famous first-year contracts case Hadley v. Baxendale. Posner’s argument against penalty default rules in contract law, hinged on the problem that no clear example had been brought to light. Posner acknowledged that the Hadley rule (which limited consequential damages to those that were foreseeable) came closest to being a penalty default rule. Nevertheless, he discounted consequential damages in the Hadley case as a majoritarian rule (i.e., what the majority of parties “would have wanted”). However, under the U.C.C., goods - not services - are for sale. This shifts informational asymmetry from the buyer of services to the seller of goods, and shifts consequential damages from a majoritarian rule to a penalty default rule. Identifying this penalty default rule accounts for Keating's observation that although parties would not have consequential damages in fully negotiated contracts, this term would be negotiated before others when exchanging forms.